Virginia legislators are considering a bill that would require hospitals to notify patients when their hospital stay is being classified as outpatient observation versus an inpatient admission — a distinction that can affect insurance coverage.
Senate Bill 750, carried by Sen. Richard H. Black, R-Loudoun, and others, would require hospitals to provide written and verbal notice to patients or their representatives. A House version of the bill did not advance.
Observation status can be problematic for Medicare patients, particularly those who wind up needing care in a skilled nursing facility after a hospital stay. Medicare covers such care only after a three-day inpatient stay at a hospital. Patients can be on observation status for days — sleeping in a hospital bed and getting tests, meals, nursing care, etc. — and the visit still be considered observation. If a stay is classified as observation, Medicare patients are subject to outpatient co-pays for services and medications versus a flat deductible for an inpatient admission.
“It’s really just a transparency bill,” said Black, who said a coalition of organizations supports the bill. Black and Kathy Pryor, an attorney with the Virginia Poverty Law Center, answered questions about the proposed legislation.
QUESTION: Why did you bring this legislation?
Black: The Loudoun County Area Agency on Aging asked for it. What is happening is some patients are being brought into hospitals and they call it an observation status, but for all practical purposes, it’s just like being in a hospital. The problem is that if the patient is not admitted, then it may affect their insurance coverage.
QUESTION: Are some hospitals already letting patients know they are on observation status?
Black: Hospitals don’t do it already, not always. There may be some. The reason it was brought to my attention was because people are getting some nasty surprises when they discover that they’ve got a bill that’s not covered by insurance, or they think they are moving into a skilled nursing home and they discover that they have not met the requirements for that.
QUESTION: How did the observation status classification come about?
Pryor: There are some policies as far as readmissions. ... Hospitals are penalized when somebody is readmitted to a hospital soon after their first admission. As well as people who are admitted and then an auditor determines that they should not have been admitted and the hospital gets penalized for that. Use of observation status is partly because of those policies.
(The Medicare Payment Advisory Commission, which advises Congress, noted other issues: Hospital admission criteria are ambiguous and open to interpretation; one-day inpatient stays are profitable and paid more than similar outpatient stays.)
QUESTION: What is happening nationally to address these concerns?
Pryor: There is a bill before Congress that would count observation status days toward the three-day hospital stay requirement for skilled nursing facility care. Obviously, that is where the big fix is, on the federal level.
QUESTION: Can patients ask a doctor to change their status from observation to inpatient admission?
Pryor provided a copy of a paper written with information from the Center for Medicare Advocacy that offers these suggestions:
If you are still in the hospital:
- Contact your doctor right away. Your doctor may be able to persuade the hospital to admit you as an inpatient.
If you are no longer in the hospital:
- If you go to a nursing home for skilled care after your hospital stay and you suspect the care in the facility will be denied because observation status prevented you from meeting the three-day hospital stay requirement, let the nursing home know you intend to appeal the denial of Medicare coverage.
Ask the nursing home to submit a “demand bill” to Medicare for your stay.
- If you are billed for prescriptions received during your hospital stay, you also might want to submit a claim through your Part D plan’s process for out-of-network pharmacy claims.